Winmark(WINA) - 2023 Q4 - Annual Report

Franchise Operations - As of December 30, 2023, Winmark operates 1,319 franchises across the United States and Canada, with 2,800 available territories[16]. - The company had a net store growth of 39 new stores in 2023, with a renewal rate of 99% across all franchises[26]. - Winmark has 71 signed franchise agreements as of December 30, 2023, with most expected to open in 2024[33]. - Over the past three years, the company has renewed over 99% of franchise agreements up for renewal, indicating strong franchisee retention[51]. - The company has 146 franchise agreements expiring in 2024, 120 in 2025, and 116 in 2026, highlighting the importance of renewals for financial performance[73]. Financial Performance - System-wide sales for 2023 reached $1,589 million, a 3.6% increase from $1,534.3 million in 2022[24]. - Total revenue for the year ended December 30, 2023, was $83.2 million, a 2.3% increase from $81.4 million in 2022[116]. - Net income for the fiscal year ended December 30, 2023, was $40,178,100, compared to $39,424,900 in the prior year, reflecting a growth of 1.9%[157]. - The franchising segment's operating income increased by $0.4 million, or 0.8%, to $49.4 million in 2023 from $49.0 million in 2022[129]. - Royalties from franchisees increased by $3.1 million, or 4.6%, compared to 2022, indicating a positive trend in franchise performance[108]. Revenue Streams - Total royalties and franchise fees for 2023 amounted to $71.7 million, representing 86.2% of consolidated revenue, up from 84.4% in 2022[26]. - Revenues from Canadian franchisees in 2023 were approximately $6.8 million, an increase from $6.4 million in 2022[18]. - The Plato's Closet brand generated system-wide sales of $647.6 million in 2023, up from $638.8 million in 2022[24]. - Merchandise sales rose to $4.8 million in 2023 from $3.9 million in 2022, marking a 23.1% increase attributed to higher technology purchases by franchisees[120]. Expenses and Costs - Selling, general and administrative expenses rose by $2.0 million, or 8.4%, compared to the same period last year, highlighting increased operational costs[109]. - Selling, general and administrative expenses increased by 8.4% to $25.1 million in 2023 from $23.2 million in 2022, driven by increased conference and advertising expenses[123]. - Cash paid for interest increased to $3,049,400 from $2,722,500 in the previous year[165]. - Advertising costs increased to $700,000 in fiscal year 2023 from $500,000 in fiscal year 2022[185]. Cash Flow and Liquidity - Cash flow from operating activities provided $44.0 million in 2023, compared to $43.8 million in 2022[132]. - As of December 30, 2023, the company had $13.4 million in cash and cash equivalents, a slight decrease from $13.7 million at the end of 2022[132]. - The company expects to fund its operations through cash flows from franchising and leasing businesses, along with available credit facilities[143]. - The company maintains cash assets that may exceed FDIC insurance limits, posing a risk to liquidity and financial condition[82]. Leasing Operations - The company has ceased soliciting new leasing customers and is pursuing an orderly run-off of its leasing portfolio, anticipating a decrease in leasing revenues[59]. - Leasing income net of leasing expense decreased to $4.4 million in 2023 from $6.0 million in 2022, reflecting the decision to run off the middle-market leasing portfolio[114]. - The company's leasing portfolio (net investment in leases) was $0.1 million at December 30, 2023, down from $0.3 million at the end of 2022, indicating a continued decline in leasing operations[114]. - Leasing income for the year ended December 30, 2023, was $4.77 million, down from $6.94 million in 2022 and $11.15 million in 2021[211]. Risk Factors - The company faces competition from established retailers and online marketplaces, which may impact franchisee sales and market share[52][80]. - Franchisees depend on a reliable supply of used merchandise, which may be affected by federal and state regulations[78]. - The company may incur additional charges if it is unable to collect accounts receivable from franchisees, impacting financial results[79]. - The company is subject to financial covenants under its line of credit and term loan facilities, and as of December 30, 2023, it was in compliance with all covenants[83]. Diversity and Workforce - As of December 30, 2023, the company employs 83 individuals, with 55% of the workforce identifying as female, reflecting a commitment to diversity[65][67]. Future Projections - Future performance and ability to meet debt service obligations may be affected by various financial and economic factors, emphasizing the importance of cash flow management[85]. - Future amortization expenses for reacquired franchise rights are projected to be $354,000 annually from 2024 to 2028[215].